Stacy Palmer: What happened to the September 11 charitable donations?

Stacy Palmer is the editor of the Chronicle of Philanthropy, a trade publication that tracks charities and non-profit organizations. She joined the CNN.com chat room from Washington, D.C.

CNN: Thank you for joining us today, Stacy Palmer, and welcome

STACY PALMER: Hello!

CNN: The Chronicle of Philanthropy conducted a survey regarding the money collected following September 11. How much has been raised, and how much has been allocated to victims?

PALMER: At least 1.3 billion dollars has been raised so far, and about 204 million has been distributed so far. Now, it's hard to tell how much is actually going to the victims, but it's a smaller portion than that, because some is going to other causes, like the ASPCA, for example, to make sure that all the animals left behind by the people on September 11 will be cared for.

PALMER: It's hard to tell, because there's never been a disaster of quite this extent. Certainly we've had other crises, but nothing to the extent of this particular crisis. We've also not ever seen as much money come in. As a result, there's so much more money coming in that the percentage distributed is slower and seems much smaller, but in comparison to something like the Oklahoma City bombing and the relief effort after that, it's about the same pace.

CHAT PARTICIPANT: Stacy, isn't it true that many charities use over 50% of contributions to pay salaries?

PALMER: No, that's not true. Charities have a number of overhead expenses that go beyond salaries. They have to pay the same things that other businesses pay. While they do get a lot of volunteers, they still have to have many paid employees. They have additional costs, like paying the rent in their buildings, all of those typical kinds of costs. And that's what goes into those figures you see for overhead. 50% is fairly high, and few spend that much on their overhead expenses.

CHAT PARTICIPANT: Haven't we always trusted the charities before? Why are we trying to tell them how to do their jobs now?

PALMER: That's a good question, and one of the reasons we do rely on charities is that they have expertise in dealing with very major disasters around the world. There are a lot of people who think it would be better for the donors to write their checks, and say "Do what you think is best, charity official," instead of saying that they want all their money to go to the victims. On the other hand, there are a lot of people who think that the donor should have a lot of say over what the charity does, and that's why you've seen the Red Cross in particular under such attack in the last few weeks.

CNN: During the televised telethon following the catastrophe, stars like Julia Roberts and George Clooney said verbatim that '100 percent' of the funds raised that night would go to charity. How ill-advised were they to say this?

PALMER: It depends what fund they were soliciting for. There was a promise that another organization would underwrite the administrative costs, so that 100% of donations would actually go for charitable purposes. So, in that sense, they were promising something that everyone at that time thought was the case.

CHAT PARTICIPANT: Do charities get to keep the interest made from donations? And do they have to report it as income?

PALMER: Yes, they do, on both questions. They manage their money very cautiously, because they know that it's donations from the public, so they don't invest in anything risky with the donated money.

CHAT PARTICIPANT: Ms. Palmer, do you think the anger of the public will have an effect on future donations]

PALMER: Very much so. I think that all charities are going to have to work hard to make clear what donations are going to, and that they're going to face a lot of questions and some people will choose not to give to any cause at all.

CHAT PARTICIPANT: Is this the first time donated money has been uncounted for?

PALMER: I don't think that's the case, that this money has been unaccounted for. We know how much has been contributed, and now the charities are in the process of distributing it. It's a very typical case, not at all unusual.

CHAT PARTICIPANT: How can the Red Cross use restricted dollars, money donated specifically for World Trade Center victims, for other purposes? Is that not against the IRS 501(c)3 regulations?

PALMER: It's not the IRS per se that regulates this, although the IRS does regulate charitable organizations. But it's more analogous to consumer protection, the same kind of rules that apply when you buy an appliance and it goes bad, something like that. That's what we're talking about in this case. We don't know if it's possible that there will be legal action against the Red Cross, because of concerns about whether money is going to where donors thought it was going when they donated. But New York Attorney General Elliot Spitzer has been saying that he might consider a lawsuit if he finds that the American Red Cross acted wrongly.

CNN: Wasn't the Red Cross actually destroying some of the blood donations because there was simply too much blood on hand?

PALMER: We don't have any evidence of that. One of their plans that they suggested, they wanted to freeze blood, which is a complicated and expensive process, so that all the blood that was donated could be available in case there's a future attack.

CHAT PARTICIPANT: Stacy, isn't the problem not so much in the donations as in the appearance of deception?

PALMER: Yes, I think many donors would have been interested in helping the Red Cross be prepared to deal with the problems caused by any future attacks, but most people when they made their donation thought they were giving directly to help those hurt on September 11. It's that disconnect that has caused Congress to look into what's happening, and caused the public to be very angry.

CHAT PARTICIPANT: Nobody was ready for the size of this situation. Are charities putting guidelines in place to handle possible similar situations in the future?

PALMER: In terms of preparing to deal with a major calamity of the extent of something like September 11, charities were actually very well-prepared, and the American Red Cross, although it's been criticized for its fund raising, has also been praised very, very highly by those on the disaster scene. They were said to be there quickly and efficiently. So I think that's a sign that the charities were ready, but the Red Cross felt it needed to be even more prepared, which is why it suggested spending some of the donations to make sure that in the future, there would be more in place to deal with a major calamity.

CNN: The House of Representatives held hearings on Tuesday and Thursday this week. Do you expect criminal investigations, or even prosecutions?

PALMER: I don't know that there will be criminal prosecutions, but I do think there will be a continued investigation that both House members and Senators have asked for. Depending on what they find, it's possible that there will be some kind of lawsuit, or possibly new legislation to impose restrictions on what charities do when they raise money.

CHAT PARTICIPANT: As a program instructor for the American Red Cross, I know they have a rigorous documentation structure. In case of the World Trade Center, do you think this is interfering with distribution?

PALMER: I don't know that anybody has said that, or examined that yet, but I think it's an important question as we review what worked and what did not. That's an important thing that will be happening in the next few weeks.

CHAT PARTICIPANT: Can the average citizen file a lawsuit against the Red Cross?

PALMER: Yes, indeed. If a donor felt deceived, he or she could file a lawsuit.

CNN: Tell us about the September 11th Fund and who runs it.

PALMER: The September 11th Fund was created by the United Way in New York City, and by the New York Community Trust, which is a nonprofit organization that distributes money to many organizations in New York. Both are organizations that have a long history of working in New York City with social service groups and health care organizations, as well as many other organizations that will be involved with the recovery effort. They have recently appointed the former president of the Ford Foundation to be the chairman of the committee, and a former Clinton aide is the executive director, overseeing the distribution of funds.

CHAT PARTICIPANT: There were many web sites and e-mailings asking for contributions to the Red Cross after September 11. Do you think the Red Cross needs to oversee this better as many didn't say what the Red Cross now says it said?

PALMER: One thing to keep in mind is that some of the e-mail that went out with the Red Cross's name on it was apparently not authorized by the Red Cross. Several weeks ago, they, along with the United Way, issued an advisory warning people that there was a lot of fraudulent e-mail, and it's unclear what was being promised by some of those e-mails that said they were part of the Red Cross, but were not.

CNN: Do you have any closing comments to share with us?

PALMER: I think one of the things this whole episode has taught us is how wonderfully generous people can be, and how quickly they respond, but also that we have to be very careful donors, and it is important to ask a lot of questions before you give your money to any non-profit organization. Any charity that won't answer your questions satisfactorily doesn't deserve your donation.

CNN: Thank you for joining us today.

PALMER: Thank you very much for the questions.

Stacy Palmer joined the CNN.com chat room by telephone and CNN provided a typist. This is an edited transcript of the interview which took place on Friday, November 9, 2001.